S H Kelkar & Company Ltd. (SHK) - Chairman Speech

Company chairman speech

Focusing on the Basics

Keva doubled revenues every five years in the last decade to reach nearly Rs. 1000crore in revenues during the last financial year. We continue to be driven by our businessambition of achieving US$ 1 billion in revenues within a decade.

The reality is that we possess the strategic clarity and execution capability on how toget there.

Context

At Keva we believe that even though we are larger more attractively placed andgrowing faster than ever before we can grow faster on a larger revenue base for a numberof reasons.

At the apex of the flavours and fragrance sectoral pyramid 80% of the market isdominated by just 11 players with individual annual revenues of more than US$ 500 million.At the bottom of the sectoral pyramid there are around 4000 players marked by annualrevenues of less than US$ 50 million.

Between these two segments lies a compelling sectoral opportunity  the largestavailable space marked by around a dozen players. Keva does not just belong to this space;it is arguably the fastest-growing in this segment. There are a number of fundamentalrealities which can accelerate our growth from this point onwards translating into aprogressively larger share of the global market.

Evolution

At Keva we intend to extend our longstanding Indian market leadership to globalstature. We intend to do what has succeeded for us in the past  a continuing focuson the basics if only with more passion more resolve and more endurance.

Perhaps the biggest transformation that we need to bring into play is a change inmindset. In the past we were reasonably content to be a large and growing Indian player;the time has come to leverage our Indian foundation and emerge as a rapidly-growing globalplayer.

In the past we were content being a large Indian company. We soon realised that ourmarket was relatively small by global standards; the time then has come to evolve from thesmall big' Indian Company to the big small' global company.

Global

At Keva we recognise that the extension from the Indian environment to the globalplayground will be marked by a number of challenges.

Keva will enter select countries instead of spreading thin across a large number. Inview of this our global presence will be generally built bottom-up through a deeperunderstanding of grass-root customer needs as opposed to sitting in India and attemptingto guess what might work in remote markets. This will also need an understanding ofcurrency flows demand trends and long-term capital allocation calls in business spacesgeographies infrastructure and people. At Keva we will be cautious in this regard. Forone we do not expect to enter a large number of countries at one shot; we will enter onlyas many countries that fit into our strategic attractiveness criteria.

Besides we will enter only those geographies where we see demographics unfold the waythey did in India leveraging our familiarity into how consumer response and appetiteswill evolve in the future.

Even as we are engaged in widening our global footprint India will continue to becentral to our strategy. We will make deeper investments in the country because we believethat the consumer revolution sweeping through the second most populous market provides anattractive growth opportunity for any serious long-term fragrance and flavoursorganisation.

Our fundamentals

Even as these challenges are daunting when seen together our responses will becorrespondingly simple. At Keva we believe that the key lies in focusing on the basicsemphasising a continuing strategic focus on what served well for us for long. We believethat the best antidote for the increasingly complex challenges of today's globalindustrial environment is the ability to return to business fundamentals and thenimplement them better than ever.

So what are these basics or fundamentals at Keva?

At Keva we believe that in business there is nothing more fundamental than partneringwith customers in listening to consumers. This provides us with an opportunity tounderstand the kind of new products our customers intend to launch; it provides us withthe latitude to suggest new developments that take the customer's business ahead. Thisengagement will help us graduate into trusted consultants. We will not only bestrengthening our supply assurance but also playing an influential role in the customer'sproduct development customer's brand building and winning consumer confidence. We willnot be occupying a presence on the periphery of our customer's business; we would beplaying an integral role in it.

The result will be that Keva will draw on its rich tradition of working alongsidecustomers and helping grow their business something that it has consistently done acrossthe last nine decades. It will reconcile this deep legacy through a number of modern-daycomplements that make it possible for today's Keva to grow faster. This complement of theconventional and the contemporary will catalyse Keva's growth and translate into sectoraloutperformance across the foreseeable future.

Acquisitions

At Keva we believe that the inorganic opportunities could help us fast-track growth.We will continue to seek units that bring complementary research products andcapabilities. We intend to buy these assets in a running condition making it relativelyeasy for us to hit the ground at an accelerated pace. We intend to share best practicesand invest in cultural integration that makes these companies a seamless extension of Kevain the shortest time.

Research

At Keva we believe that the markets of the future will be driven and dominated bycompanies that invest in di_erentiated research. Primarily we believe that this kind ofresearch is something that generally works best for the customer and grows the customer'sbusiness. The more we look into the future the more we believe that customers will needservice providers like Keva to provide new molecule research resulting in di_erentiatedsensorial delight. This is easier said than done. New molecule research is expensive andtime-consuming; this combination means that the companies engaged in this kind ofcutting-edge research will need adequate resources on the one hand and a long-termcommitment on the other. At Keva we are fortunate to possess both these attributes andhence are attractively placed to graduate to this niche.

We possess a library of fragrances that has been compiled over more than nine decades.While it would have been convenient to be complacent with this library we made thelargest research investment within our sector in India investing no less than Rs. 26.41crore in new infrastructure and recruitment to address the growing needs of our customers.

We are doing two things here: one we are preparing for a time when an increasingnumber of customers will seek the unique fragrances built on patent-protected molecules;two we have already commissioned a studio in Amsterdam manned by international perfumers.We have invested in the niche end of fine fragrances bringing a respected internationaldimension to our capability.

Culture

At Keva we recognise the growing importance of the right organisational culture. Thisis something that we have consistently guarded. In the last five years we infused a senseof youthfulness to our established values. The body may have grown larger but the soul isstill of a young company. The result is that we shall be nimble; we will enter newcustomer categories countries and products with speed. We hope to be a company thatcontinues to mutate proactively in line with external dynamics within our desired riskappetite. We intend to remain a company that is forever young.

Conclusion

I must come back to something that I mentioned in the earlier paragraphs. It used to besaid of a multinational giant that either it makes soap or markets soap. Period.

Similarly Keva is researching new products and developing them. We believe that thisfocus will empower us to grow our business in a sustainable way so that we may emerge as aglobally respected player in our fragrance and flavours space. Even as Keva 1.0 has drawnto a close we have extracted relevant elements to create a more compelling Keva 2.0story. The time starts now.